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TransCanada Corporation’s $7 billion Keystone XL pipeline expansion has been designed to transport Canadian tar sands oil to Texas through Nebraska’s picturesque Sand Hills region, and over an aquifer that provides the state about 80 percent of its water for drinking and irrigation. Last week, the U.S. State Department announced it will wait until after the 2012 elections to announce whether to permit the route. And yesterday, a key Nebraska lawmaker announced that TransCanada has decided to reroute the pipeline to avoid the Sand Hills region's grassy dunes — if the state pays for a study of alternate routes.

“This is our land. These are our people. We will pay for this. It’s the right thing to do,” Senator Mike Flood, the unicameral legislature’s speaker, said according Reuters.

The announcements come two weeks into a special legislative session that had attracted national attention. While Republican Governor Dave Heineman — who called the special session — and others are pleased by the recent developments, Nebraska has learned some lessons from the pipeline battle. Had the state put certain regulations on the books earlier, policymakers probably could have avoided some headaches, and perhaps the cost of a supplemental study.

Regulatory vacuum

The dispute in Nebraska has been based largely on the problem of unclaimed authority. “Unlike many of the other states that the pipeline might pass through if it were to be approved,” says Kerri-Ann Jones, Assistant Secretary of State in the Bureau of Oceans and International Environmental and Scientific Affairs, “Nebraska does not have in place a regulatory framework that really allows them to participate in siting where the pipeline may go.”

Though it’s up to the State Department to approve pipelines that cross national borders, states — if they first draw up the rules — have a say over routes that pass within their boundaries. That’s a piece of law that policymakers in Nebraska have only recently been discovering. “We were under the assumption that the state had no authority,” says state Senator Annette Dubas, who introduced a bill during the special session that would grant Nebraska regulatory power. Her legislation would allow Nebraska’s Public Services Commission to review a pipeline route before issuing approval.

Dubas began working on the siting issue about two years ago, after several of her constituents, many of them farmers or ranchers, expressed concerns about losing land to TransCanada’s claims of eminent domain. But anti-pipeline groups hadn’t fully mobilized their opposition, and she couldn’t move her bills through the unicameral legislature. Now, following a groundswell of complaints about the pipeline that have brought together an unlikely coalition of farmers, ranchers and environmental activists, the idea of putting state rules in place is gaining support.

“In perfect hindsight, the state should have acted several years ago,” Heineman told reporters last week. “But that’s not where we are at today.”

Pipeline advocates have criticized the notion of adding state-level environmental review to a process that, in the case of Keystone XL, has taken three years for the federal government to complete. Oil companies and labor unions say the extra study is redundant, and would obstruct projects capable of creating jobs and reducing U.S. dependence on foreign oil.

But proponents of state review say State Department scrutiny is conducted with a broad lens that often ignores concerns about effects on vegetation, habitats or floodplains. “If [states] don’t look at those issues, nobody will,” says Sandra Zellmer, a professor of environmental and water law at the University of Nebraska-Lincoln. “That creates a dangerous regulatory vacuum.”

Claiming authority

At least a handful of states, including two along the proposed Keystone XL route, have filled that void. Both South Dakota and Montana have required TransCanada to obtain a state permit before building the pipeline. Montana has yet to approve the project, pending next year’s federal decision.

This is not the first time Montana’s permitting law has come into play. In 2008, the state’s Major Facilities Siting Act allowed the Department of Environmental Quality to reroute the proposed Montana-Alberta Tie-Line — a still unfinished electrical transmission project — amidst worries it would disturb wetlands and an American Indian cultural site.

Greg Hallsten, who oversees permitting for the Montana Department of Environmental Quality, says the state rarely sites a project without issuing slight changes. But the rerouting doesn’t lead to long delays, he insists. “Not everyone’s going to be happy, but it works for us.” Dubas’ proposed legislation in Nebraska has been modeled largely after Montana’s law.

Resistance from developers

Until recently, discussions between Nebraska and TransCanada have been testy. TransCanada officials initially complained that after three years of careful company planning, Nebraska was trying to change the rules. A legal firm representing the company argued that state legislation targeting Keystone XL would open the door for a court injunction and a ruling that could require Nebraska to shell out billions of dollars in damages for violating laws against the taking of private property — an argument that some legal experts disputed. Monday’s announcement seems to have rendered those concerns moot.

Lawmakers will likely vote this week on the compromise offered by TransCanada.